What is the real power of incumbents? Case study on the Czech Republic

Abstract

After an introduction of competition due to liberalisation, there is an expectation of lower prices and better quality. However, these overall positive effects could be also driven by the incumbent’s incentive to exclude competition within the liberalised markets. Such a situation occurred on the Prague-Ostrava line where liberalisation brought lower prices and an increase in quality. However, it also brought multiple accusations by both the Czech competition authority and the European Commission of the state-owned incumbent, České dráhy, that it had engaged in predatory pricing. This paper then assesses whether the price decreases within this line were driven by actual competition or by predatory behaviour of České dráhy by analysing the position of České dráhy. The aim of this paper therefore is to assess the real market power of the Czech state incumbent, České dráhy, on the Prague-Ostrava line. To achieve this aim, we used unique data we had gathered from our previous research (such as price development, market shares and customer behaviour). Our results then show that it is unlikely that České dráhy could have acted independently of its competitors and customers, which indicates that it could not have had a dominant position.